Shore Bancshares, Inc.

18 E. Dover Street

Easton, Maryland 21601

Phone 410-763-7800

 

PRESS RELEASE

 

Shore Bancshares Reports Third Quarter and Nine-Month Results

 

Easton, Maryland (10/23/2012) - Shore Bancshares, Inc. (NASDAQ - SHBI) reported a net loss of $1.8 million or $(0.22) per diluted common share for the third quarter of 2012, compared to net income of $293 thousand or $0.03 per diluted common share for the second quarter of 2012, and net income of $94 thousand or $0.01 per diluted common share for the third quarter of 2011.

 

The Company reported a net loss of $4.6 million or $(0.54) per diluted common share for the first nine months of 2012, compared to a net loss of $1.2 million or $(0.14) per diluted common share for the first nine months of 2011.

 

“As we continue to charge off problem assets, we added $6.2 million to the provision for credit losses during the third quarter. Net charge-offs for the third quarter were $6.2 million, of which $4.2 million were attributable to two sizeable real estate loan relationships,” said W. Moorhead Vermilye, chief executive officer. “Net charge-offs during prior quarters this year were $4.1 million for the second quarter and $9.1 million for the first quarter. Clearly, there is a very high cost involved in working our way out of troubled loans and removing them from the balance sheet, but we are moving as aggressively as possible through this tough cycle. Fortunately, the underlying strength of the company has enabled us to maintain capital levels substantially above regulatory minimums to be considered well capitalized, as evidenced by our ratio of average equity to average assets of 10.26% for the first nine months of 2012 and the ratio of average tangible equity to average tangible assets of 8.97% for the nine-month period.”

 

When comparing the third quarter of 2012 to the second quarter of 2012, the primary reason for the difference in results was an increase in the provision for credit losses of $2.7 million. When comparing the third quarter of 2012 to the third quarter of 2011, the main reasons for the difference in results were an increase in the provision for credit losses of $2.6 million and a decline in net interest income of $1.4 million. When comparing the first nine months of 2012 to the first nine months of 2011, the principal factors driving the difference were an increase in the provision for credit losses of $2.7 million and a decline in net interest income of $3.0 million.

 

Balance Sheet Review

Total assets were $1.179 billion at September 30, 2012, a $20.4 million, or 1.8%, increase when compared to the $1.158 billion at the end of 2011. Total loans decreased 3.9% to $808.0 million while total earning assets increased 1.6% to $1.1 billion when compared to December 31, 2011. Total deposits increased 2.8% to $1.039 billion while total stockholders’ equity decreased 2.5% from the end of 2011. The ratio of average equity to average assets was 10.26% and 10.74% for the first nine months of 2012 and 2011, respectively, while the ratio of average tangible equity to average tangible assets was 8.97% and 9.27% for the first nine months of 2012 and 2011, respectively. Capital levels remain well above regulatory minimums to be considered well-capitalized.

 

Review of Quarterly Financial Results

Net interest income for the third quarter of 2012 was $8.7 million, a 3.4% decrease from the second quarter of 2012 and a 13.8% decrease from the same period last year. The decrease in net interest income when compared to the second quarter of 2012 was primarily due to lower yields earned on average earning assets. The decrease in net interest income when compared to the third quarter of 2011 was primarily due to lower yields earned on average earning assets and a decline in higher-yielding average loan balances. The Company’s net interest margin was 3.15% for the third quarter of 2012, 3.36% for the second quarter of 2012 and 3.77% for the third quarter of 2011.

 

 

Page 2 of 11

  

The provision for credit losses was $6.2 million for the three months ended September 30, 2012. The comparable amounts were $3.5 million and $3.7 million for the three months ended June 30, 2012 and September 30, 2011, respectively. The ratio of the allowance for credit losses to period-end loans was 1.60% at both September 30, 2012 and June 30, 2012 and 1.57% at September 30, 2011.

 

The higher level of provision for credit losses for the third quarter of 2012 when compared to the second quarter of 2012 and the third quarter of 2011 was primarily in response to loan charge-offs. Net charge-offs were $6.2 million for the third quarter of 2012, $4.1 million for the second quarter of 2012 and $6.5 million for the third quarter of 2011. A large portion of the loan charge-offs during the third quarter of 2012, $4.2 million, resulted from two real estate loan relationships. The ratio of quarter-to-date annualized net charge-offs to average loans was 3.07% for the third quarter of 2012, 2.01% for the second quarter of 2012 and 2.95% for the third quarter of 2011. Total nonperforming assets at September 30, 2012 increased $3.1 million when compared to June 30, 2012, which included a $13.6 million increase in accruing troubled debt restructurings net of an $8.5 million decline in nonaccrual loans and a $3.1 million decline in other real estate owned. The change in the components of nonperforming assets reflected our continued effort either to develop concessionary workouts relating to problem loans or remove problem loans from our portfolio. Nonperforming assets at September 30, 2012 increased $10.4 million when compared to September 30, 2011, primarily due to an increase in troubled debt restructurings. The ratio of nonperforming assets to total assets was 8.77% at September 30, 2012, compared to 8.53% at June 30, 2012 and 8.02% at September 30, 2011.

 

Total noninterest income for the third quarter of 2012 decreased $576 thousand, or 12.6%, when compared to the second quarter of 2012 and decreased $522 thousand, or 11.5%, when compared to the third quarter of 2011. The lower amount when compared to the second quarter of 2012 was primarily the result of a decrease in other noninterest income ($845 thousand) partially offset by an increase in investment securities gains ($278 thousand). Included in other noninterest income for the third quarter of 2012 was $581 thousand in losses on the sales of other real estate owned, mainly relating to two properties. Included in other noninterest income for the second quarter of 2012 was a $217 thousand gain on the sale of a bank branch building. The decrease in noninterest income during the third quarter of 2012 when compared to the third quarter of 2011 was primarily due to a decline in other noninterest income ($513 thousand) mainly from the $581 thousand in losses on the sales of other real estate owned.

 

Total noninterest expense for the third quarter of 2012 remained relatively flat when compared to the second quarter of 2012. When compared to the third quarter of 2011, total noninterest expense for the third quarter of 2012 decreased $968 thousand, or 9.1%. This decrease was primarily due to a decline in goodwill impairment ($1.3 million) and other noninterest expenses ($186 thousand). During the third quarter of 2012, goodwill and other intangible assets were subjected to the annual assessment for impairment. As a result of the assessment, it was determined that there was no impairment at the Company’s subsidiaries that have these intangible assets on their balance sheets. Included in other noninterest expenses were lower amounts related to other real estate owned activities ($250 thousand). Partially offsetting the decrease in total noninterest expense were increases in salaries and wages ($289 thousand) and FDIC insurance premium expense ($196 thousand).

 

Review of Nine-Month Financial Results

Net interest income for the first nine months of 2012 was $27.0 million, a decrease of 9.9% when compared to the first nine months of 2011. This decrease was primarily due to lower yields earned on average earning assets and a decline in higher-yielding average loan balances. The net interest margin was 3.31% for the first nine months of 2012 and 3.79% for the first nine months of 2011.

Page 3 of 11

 

The provisions for credit losses for the nine months ended September 30, 2012 and 2011 were $18.1 million and $15.4 million, respectively. Net charge-offs were $19.4 million and $16.1 million for the nine months ended September 30, 2012 and 2011, respectively. The ratio of year-to-date annualized net charge-offs to average loans was 3.17% for the first nine months of 2012 and 2.45% for the first nine months of 2011.

 

Total noninterest income for the nine months ended September 30, 2012 decreased $147 thousand, or 1.1%, when compared to the same period in 2011. This decrease was primarily due to a decline in service charges on deposit accounts ($247 thousand) and investment securities gains ($157 thousand) which was partially offset by an increase in insurance agency commissions ($225 thousand).

 

Total noninterest expense for the nine months ended September 30, 2012 increased $108 thousand, or less than 1%, when compared to the same period in 2011. The increase was primarily due to higher salaries and wages ($731 thousand) and other noninterest expenses ($739 thousand) which was partially offset by the $1.3 million decline in goodwill impairment. Salaries and wages included amounts relating to the hiring of a new executive vice president at The Talbot Bank of Easton, Maryland during the second quarter of last year as part of that bank’s succession plan, and a new lender at CNB for the Delaware region during the third quarter of last year. Other noninterest expenses included higher amounts relating to other real estate owned activities ($393 thousand) and collection expense for loans ($217 thousand).

 

Shore Bancshares Information

Shore Bancshares, Inc. is a financial holding company headquartered in Easton, Maryland and is the largest independent bank holding company located on Maryland’s Eastern Shore. It is the parent company of two banks, The Talbot Bank of Easton, Maryland, and CNB; three insurance producer firms, The Avon-Dixon Agency, LLC, Elliott Wilson Insurance, LLC and Jack Martin and Associates, Inc; a wholesale insurance company, TSGIA, Inc; two insurance premium finance companies, Mubell Finance, LLC and ESFS, Inc; and a registered investment adviser firm, Wye Financial Services, LLC. Shore Bancshares, Inc. engages in the mortgage broker business under the name “Wye Mortgage Group” through a minority series investment in an unrelated Delaware limited liability company. Additional information is available at www.shbi.com.

 

Forward-Looking Statements

This press release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not represent historical facts, but statements about management’s beliefs, plans and objectives. These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports filed by Shore Bancshares, Inc. with the Securities and Exchange Commission entitled “Risk Factors”.

 

For further information contact: W. Moorhead Vermilye, Chief Executive Officer, 410-763-7800

 

 

  

Shore Bancshares, Inc.																						Page 4 of 11
Financial Highlights
(Dollars in thousands, except per share data)
		For the Three Months Ended												For the Nine Months Ended
		September 30,												September 30,
		2012				2011				Change				2012				2011				Change
PROFITABILITY FOR THE PERIOD
Net interest income		$	8,730			$	10,123				(13.8	)%		$	26,958			$	29,927				(9.9	)%
Provision for credit losses			6,200				3,650				69.9				18,095				15,435				17.2
Noninterest income			4,001				4,523				(11.5	)			13,152				13,299				(1.1	)
Noninterest expense			9,709				10,677				(9.1	)			29,870				29,762				0.4
(Loss) income before income taxes			(3,178	)			319				(1,096.2	)			(7,855	)			(1,971	)			(298.5	)
Income tax (benefit) expense			(1,357	)			225				(703.1	)			(3,291	)			(749	)			(339.4	)
Net (loss) income		$	(1,821	)		$	94				(2,037.2	)		$	(4,564	)		$	(1,222	)			(273.5	)
Return on average assets			(0.61	)%			0.03	%			(64	)bp			(0.52	)%			(0.14	)%			(38	)bp
Return on average equity			(6.07	)			0.31				(638	)			(5.08	)			(1.34	)			(374	)
Return on average tangible equity (1)			(6.82	)			4.21				(1,103	)			(5.65	)			(0.09	)			(556	)
Net interest margin			3.15				3.77				(62	)			3.31				3.79				(48	)
Efficiency ratio - GAAP			76.03				72.66				337				74.23				68.59				564
Efficiency ratio - Non-GAAP (1)			76.95				64.18				1,277				74.35				65.25				910
PER SHARE DATA
Basic net (loss) income per common share		$	(0.22	)		$	0.01				(2,300.0	)%		$	(0.54	)		$	(0.14	)			(285.7	)%
Diluted net (loss) income per common share			(0.22	)			0.01				(2,300.0	)			(0.54	)			(0.14	)			(285.7	)
Dividends paid per common share			-				0.01				(100.0	)			0.01				0.08				(87.5	)
Book value per common share at period end			13.97				14.31				(2.4	)
Tangible book value per common share at period end (1)			12.04				12.32				(2.3	)
Market value at period end			6.02				4.36				38.1
Market range:
High			6.33				7.06				(10.3	)			7.45				11.11				(32.9	)
Low			4.98				3.95				26.1				4.91				3.95				24.3
AVERAGE BALANCE SHEET DATA
Loans		$	808,244			$	869,221				(7.0	)%		$	819,088			$	879,509				(6.9	)%
Securities			137,871				113,938				21.0				135,411				110,482				22.6
Earning assets			1,108,256				1,069,636				3.6				1,094,247				1,062,846				3.0
Assets			1,184,146				1,142,588				3.6				1,169,158				1,132,964				3.2
Deposits			1,040,693				994,968				4.6				1,024,390				984,733				4.0
Stockholders' equity			119,321				121,327				(1.7	)			119,916				121,656				(1.4	)
CREDIT QUALITY DATA AT PERIOD END
Net charge-offs		$	6,235			$	6,468				(3.6	)%		$	19,428			$	16,122				20.5	%
Nonaccrual loans		$	39,442			$	49,581				(20.4	)
Loans 90 days past due and still accruing			4,675				10,516				(55.5	)
Accruing troubled debt restructurings			50,785				22,929				121.5
Total nonperforming loans			94,902				83,026				14.3
Other real estate and other assets owned, net			8,418				9,865				(14.7	)
Total nonperforming assets		$	103,320			$	92,891				11.2
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets			10.08	%			10.62	%			(54	)bp			10.26	%			10.74	%			(48	)bp
Average tangible equity to average tangible assets (1)			8.81				9.17				(36	)			8.97				9.27				(30	)
Annualized net charge-offs to average loans			3.07				2.95				12				3.17				2.45				72
Allowance for credit losses to period-end loans			1.60				1.57				3
Allowance for credit losses to nonaccrual loans			32.85				27.31				554
Allowance for credit losses to nonperforming loans			13.65				16.31				(266	)
Nonaccrual loans to total loans			4.88				5.75				(87	)
Nonaccrual loans to total assets			3.35				4.28				(93	)
Nonperforming assets to total loans+other real estate and
other assets owned			12.65				10.65				200
Nonperforming assets to total assets			8.77				8.02				75
(1)  See the reconciliation table on page 11 of 11.

 

 

 

 

Shore Bancshares, Inc.							Page 5 of 11
Consolidated Balance Sheets
(In thousands, except per share data)

 

														September 30, 2012				September 30, 2012
		September 30,				December 31,				September 30,				compared to				compared to
		2012				2011				2011				December 31, 2011				September 30, 2011
ASSETS
Cash and due from banks		$	22,005			$	22,986			$	26,519				(4.3	)%			(17.0	)%
Interest-bearing deposits with other banks			138,422				99,776				92,293				38.7				50.0
Federal funds sold			23,021				4,980				9,966				362.3				131.0
Investments available for sale (at fair value)			126,372				129,780				105,804				(2.6	)			19.4
Investments held to maturity			4,075				6,480				6,524				(37.1	)			(37.5	)
Loans			808,030				841,050				862,566				(3.9	)			(6.3	)
Less: allowance for credit losses			(12,955	)			(14,288	)			(13,540	)			(9.3	)			(4.3	)
Loans, net			795,075				826,762				849,026				(3.8	)			(6.4	)
Premises and equipment, net			15,537				14,662				14,236				6.0				9.1
Goodwill			12,454				12,454				12,454				-				-
Other intangible assets, net			3,890				4,208				4,334				(7.6	)			(10.2	)
Other real estate and other assets owned, net			8,418				9,385				9,865				(10.3	)			(14.7	)
Other assets			29,364				26,720				26,515				9.9				10.7
Total assets		$	1,178,633			$	1,158,193			$	1,157,536				1.8				1.8
LIABILITIES
Noninterest-bearing deposits		$	156,579			$	133,801			$	135,822				17.0				15.3
Interest-bearing deposits			881,935				876,118				876,097				0.7				0.7
Total deposits			1,038,514				1,009,919				1,011,919				2.8				2.6
Short-term borrowings			13,079				17,817				15,292				(26.6	)			(14.5	)
Accrued expenses and other liabilities			8,422				8,753				8,407				(3.8	)			0.2
Long-term debt			455				455				932				-				(51.2	)
Total liabilities			1,060,470				1,036,944				1,036,550				2.3				2.3
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; authorized
35,000,000 shares			85				85				85				-				-
Warrant			-				-				1,543				-				(100.0	)
Additional paid in capital			32,120				32,052				30,438				0.2				5.5
Retained earnings			86,152				90,801				90,560				(5.1	)			(4.9	)
Accumulated other comprehensive loss			(194	)			(1,689	)			(1,640	)			88.5				88.2
Total stockholders' equity			118,163				121,249				120,986				(2.5	)			(2.3	)
Total liabilities and stockholders' equity		$	1,178,633			$	1,158,193			$	1,157,536				1.8				1.8
Period-end common shares outstanding			8,457				8,457				8,457				-				-
Book value per common share		$	13.97			$	14.34			$	14.31				(2.6	)			(2.4	)

 

 

 

Shore Bancshares, Inc.									Page 6 of 11
Consolidated Statements of Income
(In thousands, except per share data)

 

		For the Three Months Ended												For the Nine Months Ended
		September 30,												September 30,
		2012				2011				%Change				2012				2011				%Change
INTEREST INCOME
Interest and fees on loans		$	10,604			$	12,003				(11.7	)%		$	32,505			$	35,900				(9.5	)%
Interest and dividends on investment securities:
Taxable			685				795				(13.8	)			2,149				2,234				(3.8	)
Tax-exempt			22				38				(42.1	)			92				116				(20.7	)
Interest on federal funds sold			3				3				-				7				24				(70.8	)
Interest on deposits with other banks			79				29				172.4				188				47				300.0
Total interest income			11,393				12,868				(11.5	)			34,941				38,321				(8.8	)
INTEREST EXPENSE
Interest on deposits			2,647				2,720				(2.7	)			7,931				8,322				(4.7	)
Interest on short-term borrowings			10				15				(33.3	)			36				41				(12.2	)
Interest on long-term debt			6				10				(40.0	)			16				31				(48.4	)
Total interest expense			2,663				2,745				(3.0	)			7,983				8,394				(4.9	)
NET INTEREST INCOME			8,730				10,123				(13.8	)			26,958				29,927				(9.9	)
Provision for credit losses			6,200				3,650				69.9				18,095				15,435				17.2
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES			2,530				6,473				(60.9	)			8,863				14,492				(38.8	)
NONINTEREST INCOME
Service charges on deposit accounts			628				697				(9.9	)			1,898				2,145				(11.5	)
Trust and investment fee income			410				389				5.4				1,279				1,183				8.1
Investment securities gains			278				354				(21.5	)			278				435				(36.1	)
Insurance agency commissions			2,427				2,312				5.0				7,522				7,297				3.1
Other noninterest income			258				771				(66.5	)			2,175				2,239				(2.9	)
Total noninterest income			4,001				4,523				(11.5	)			13,152				13,299				(1.1	)
NONINTEREST EXPENSE
Salaries and wages			4,386				4,097				7.1				13,178				12,447				5.9
Employee benefits			945				878				7.6				3,071				2,917				5.3
Occupancy expense			625				585				6.8				1,950				1,749				11.5
Furniture and equipment expense			265				262				1.1				728				825				(11.8	)
Data processing			703				661				6.4				2,063				2,192				(5.9	)
Directors' fees			131				198				(33.8	)			367				417				(12.0	)
Goodwill and other intangible assets impairment			-				1,344				(100.0	)			-				1,344				(100.0	)
Amortization of intangible assets			96				129				(25.6	)			318				386				(17.6	)
Insurance agency commissions expense			275				250				10.0				1,004				982				2.2
FDIC insurance premium expense			376				180				108.9				993				1,044				(4.9	)
Other noninterest expenses			1,907				2,093				(8.9	)			6,198				5,459				13.5
Total noninterest expense			9,709				10,677				(9.1	)			29,870				29,762				0.4
(Loss) income before income taxes			(3,178	)			319				(1,096.2	)			(7,855	)			(1,971	)			(298.5	)
Income tax (benefit) expense			(1,357	)			225				(703.1	)			(3,291	)			(749	)			(339.4	)
NET (LOSS) INCOME		$	(1,821	)		$	94				(2,037.2	)		$	(4,564	)		$	(1,222	)			(273.5	)
Weighted average shares outstanding - basic			8,457				8,457				-				8,457				8,449				0.1
Weighted average shares outstanding - diluted			8,457				8,457				-				8,457				8,449				0.1
Basic net (loss) income per common share		$	(0.22	)		$	0.01				(2,300.0	)		$	(0.54	)		$	(0.14	)			(285.7	)
Diluted net (loss) income per common share			(0.22	)			0.01				(2,300.0	)			(0.54	)			(0.14	)			(285.7	)
Dividends paid per common share			-				0.01				(100.0	)			0.01				0.08				(87.5	)

 

 

 

Shore Bancshares, Inc.							Page 7 of 11
Consolidated Average Balance Sheets
(Dollars in thousands)

 

		For the Three Months Ended																For the Nine Months Ended
		September 30,																September 30,
		2012								2011								2012								2011
		Average				Yield/				Average				Yield/				Average				Yield/				Average				Yield/
		balance				rate				balance				rate				balance				rate				balance				rate
Earning assets
Loans		$	808,244				5.23	%		$	869,221				5.49	%		$	819,088				5.31	%		$	879,509				5.47	%
Investment securities
Taxable			135,257				2.01				109,498				2.88				131,863				2.18				105,939				2.82
Tax-exempt			2,614				5.07				4,440				5.12				3,548				5.27				4,543				5.16
Federal funds sold			11,971				0.11				15,905				0.07				10,992				0.09				28,896				0.11
Interest-bearing deposits			150,170				0.21				70,572				0.16				128,756				0.19				43,959				0.14
Total earning assets			1,108,256				4.10	%			1,069,636				4.79	%			1,094,247				4.28	%			1,062,846				4.84	%
Cash and due from banks			20,158								20,414								19,920								19,356
Other assets			69,921								69,394								69,514								67,588
Allowance for credit losses			(14,189	)							(16,856	)							(14,523	)							(16,826	)
Total assets		$	1,184,146							$	1,142,588							$	1,169,158							$	1,132,964
Interest-bearing liabilities
Demand deposits		$	167,423				0.18	%		$	154,685				0.20	%		$	157,835				0.18	%		$	141,447				0.21	%
Money market and savings deposits (1)			279,003				1.19				266,871				1.03				278,297				1.16				263,216				0.97
Certificates of deposit $100,000 or more			238,624				1.46				235,362				1.63				240,595				1.46				246,362				1.67
Other time deposits			207,547				1.66				204,836				1.91				204,789				1.74				206,470				2.01
Interest-bearing deposits			892,597				1.18				861,754				1.25				881,516				1.20				857,495				1.30
Short-term borrowings			14,909				0.27				15,640				0.37				15,448				0.31				14,947				0.36
Long-term debt			455				4.58				932				4.46				455				4.61				932				4.51
Total interest-bearing liabilities			907,961				1.17	%			878,326				1.24	%			897,419				1.19	%			873,374				1.29	%
Noninterest-bearing deposits			148,096								133,214								142,874								127,238
Accrued expenses and other liabilities			8,768								9,721								8,949								10,696
Stockholders' equity			119,321								121,327								119,916								121,656
Total liabilities and stockholders' equity		$	1,184,146							$	1,142,588							$	1,169,158							$	1,132,964
Net interest spread							2.93	%							3.55	%							3.09	%							3.55	%
Net interest margin							3.15	%							3.77	%							3.31	%							3.79	%

 

(1)

Interest on money market and savings deposits includes an adjustment to expense related to interest rate caps and the hedged  deposits associated with them.  This adjustment increased interest expense $524 thousand and $348 thousand for the third quarter of 2012 and 2011, respectively, and $1.5 million and $907 thousand for the first nine months of 2012 and 2011, respectively.

 

 

Shore Bancshares, Inc.							Page 8 of 11
Financial Highlights By Quarter
(Dollars in thousands, except per share data)

 

		3rd quarter				2nd quarter				1st quarter				4th quarter				3rd quarter				3Q 12				3Q 12
		2012				2012				2012				2011				2011				compared to				compared to
		(3Q 12)				(2Q 12)				(1Q 12)				(4Q 11)				(3Q 11)				2Q 12				3Q 11
PROFITABILITY FOR THE PERIOD
Taxable-equivalent net interest income		$	8,769			$	9,077			$	9,243			$	9,889			$	10,172				(3.4	)%			(13.8	)%
Less:  Taxable-equivalent adjustment			39				44				48				52				49				(11.4	)			(20.4	)
Net interest income			8,730				9,033				9,195				9,837				10,123				(3.4	)			(13.8	)
Provision for credit losses			6,200				3,525				8,370				4,035				3,650				75.9				69.9
Noninterest income			4,001				4,577				4,574				4,019				4,523				(12.6	)			(11.5	)
Noninterest expense			9,709				9,663				10,498				9,405				10,677				0.5				(9.1	)
(Loss) income before income taxes			(3,178	)			422				(5,099	)			416				319				(853.1	)			(1,096.2	)
Income tax (benefit) expense			(1,357	)			129				(2,063	)			91				225				(1,151.9	)			(703.1	)
Net (loss) income		$	(1,821	)		$	293			$	(3,036	)		$	325			$	94				(721.5	)			(2,037.2	)
Return on average assets			(0.61	)%			0.10	%			(1.05	)%			0.11	%			0.03	%			(71	)bp			(64	)bp
Return on average equity			(6.07	)			0.99				(10.04	)			1.07				0.31				(706	)			(638	)
Return on average tangible equity (1)			(6.82	)			1.38				(11.33	)			1.53				4.21				(820	)			(1,103	)
Net interest margin			3.15				3.36				3.42				3.60				3.77				(21	)			(62	)
Efficiency ratio - GAAP			76.03				70.77				75.98				67.62				72.66				526				337
Efficiency ratio - Non-GAAP (1)			76.95				71.20				75.07				67.61				64.18				575				1,277
PER SHARE DATA
Basic net (loss) income per common share		$	(0.22	)		$	0.03			$	(0.36	)		$	0.04			$	0.01				(833.3	)%			(2,300.0	)%
Diluted net (loss) income per common share			(0.22	)			0.03				(0.36	)			0.04				0.01				(833.3	)			(2,300.0	)
Dividends paid per common share			-				-				0.01				0.01				0.01				-				(100.0	)
Book value per common share at period end			13.97				14.13				14.02				14.34				14.31				(1.1	)			(2.4	)
Tangible book value per common share at period end (1)			12.04				12.18				12.07				12.37				12.32				(1.1	)			(2.3	)
Market value at period end			6.02				5.98				7.09				5.15				4.36				0.7				38.1
Market range:
High			6.33				7.45				7.40				6.13				7.06				(15.0	)			(10.3	)
Low			4.98				5.51				4.91				4.20				3.95				(9.6	)			26.1
AVERAGE BALANCE SHEET DATA
Loans		$	808,244			$	816,553			$	832,585			$	854,302			$	869,221				(1.0	)%			(7.0	)%
Securities			137,871				134,299				134,037				122,725				113,938				2.7				21.0
Earning assets			1,108,256				1,086,223				1,088,106				1,089,078				1,069,636				2.0				3.6
Assets			1,184,146				1,163,598				1,159,566				1,160,652				1,142,588				1.8				3.6
Deposits			1,040,693				1,021,130				1,011,170				1,013,848				994,968				1.9				4.6
Stockholders' equity			119,321				118,774				121,658				121,020				121,327				0.5				(1.7	)
CREDIT QUALITY DATA AT PERIOD END
Net charge-offs		$	6,235			$	4,079			$	9,114			$	3,287			$	6,468				52.9	%			(3.6	)%
Nonaccrual loans		$	39,442			$	47,958			$	49,405			$	51,370			$	49,581				(17.8	)			(20.4	)
Loans 90 days past due and still accruing			4,675				3,519				3,796				2,723				10,516				32.9				(55.5	)
Accruing troubled debt restructurings			50,785				37,231				30,010				25,208				22,929				36.4				121.5
Total nonperforming loans			94,902				88,708				83,211				79,301				83,026				7.0				14.3
Other real estate and other assets owned, net			8,418				11,499				11,418				9,385				9,865				(26.8	)			(14.7	)
Total nonperforming assets		$	103,320			$	100,207			$	94,629			$	88,686			$	92,891				3.1				11.2
CAPITAL AND CREDIT QUALITY RATIOS
Average equity to average assets			10.08	%			10.21	%			10.49	%			10.43	%			10.62	%			(13	)bp			(54	)bp
Average tangible equity to average tangible assets (1)			8.81				8.92				9.19				9.12				9.17				(11	)			(36	)
Annualized net charge-offs to average loans			3.07				2.01				4.40				1.53				2.95				106				12
Allowance for credit losses to period-end loans			1.60				1.60				1.65				1.70				1.57				-				3
Allowance for credit losses to nonaccrual loans			32.85				27.09				27.41				27.81				27.31				576				554
Allowance for credit losses to nonperforming loans			13.65				14.64				16.28				18.02				16.31				(99	)			(266	)
Nonaccrual loans to total loans			4.88				5.92				6.03				6.11				5.75				(104	)			(87	)
Nonaccrual loans to total assets			3.35				4.08				4.22				4.44				4.28				(73	)			(93	)
Nonperforming assets to total loans+other real estate and
other assets owned			12.65				12.20				11.40				10.43				10.65				45				200
Nonperforming assets to total assets			8.77				8.53				8.09				7.66				8.02				24				75
(1)  See the reconciliation table on page 11 of 11.

 

 

Shore Bancshares, Inc.			Page 9 of 11
Consolidated Statements of Income By Quarter
(In thousands, except per share data)

 

																						3Q 12				3Q 12
																						compared to				compared to
		3Q 12				2Q 12				1Q 12				4Q 11				3Q 11				2Q 12				3Q 11
INTEREST INCOME
Interest and fees on loans		$	10,604			$	10,890			$	11,011			$	11,649			$	12,003				(2.6	)%			(11.7	)%
Interest and dividends on investment securities:
Taxable			685				707				757				797				795				(3.1	)			(13.8	)
Tax-exempt			22				32				38				38				38				(31.3	)			(42.1	)
Interest on federal funds sold			3				2				2				1				3				50.0				-
Interest on deposits with other banks			79				61				48				46				29				29.5				172.4
Total interest income			11,393				11,692				11,856				12,531				12,868				(2.6	)			(11.5	)
INTEREST EXPENSE
Interest on deposits			2,647				2,643				2,641				2,673				2,720				0.2				(2.7	)
Interest on short-term borrowings			10				11				15				15				15				(9.1	)			(33.3	)
Interest on long-term debt			6				5				5				6				10				20.0				(40.0	)
Total interest expense			2,663				2,659				2,661				2,694				2,745				0.2				(3.0	)
NET INTEREST INCOME			8,730				9,033				9,195				9,837				10,123				(3.4	)			(13.8	)
Provision for credit losses			6,200				3,525				8,370				4,035				3,650				75.9				69.9
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES			2,530				5,508				825				5,802				6,473				(54.1	)			(60.9	)
NONINTEREST INCOME
Service charges on deposit accounts			628				622				648				700				697				1.0				(9.9	)
Trust and investment fee income			410				446				423				380				389				(8.1	)			5.4
Investment securities gains			278				-				-				128				354				-				(21.5	)
Insurance agency commissions			2,427				2,406				2,689				2,061				2,312				0.9				5.0
Other noninterest income			258				1,103				814				750				771				(76.6	)			(66.5	)
Total noninterest income			4,001				4,577				4,574				4,019				4,523				(12.6	)			(11.5	)
NONINTEREST EXPENSE
Salaries and wages			4,386				4,376				4,416				4,378				4,097				0.2				7.1
Employee benefits			945				956				1,170				923				878				(1.2	)			7.6
Occupancy expense			625				638				687				563				585				(2.0	)			6.8
Furniture and equipment expense			265				212				251				234				262				25.0				1.1
Data processing			703				694				666				660				661				1.3				6.4
Directors' fees			131				127				109				83				198				3.1				(33.8	)
Goodwill and other intangible assets impairment			-				-				-				-				1,344				-				(100.0	)
Amortization of intangible assets			96				96				126				126				129				-				(25.6	)
Insurance agency commissions expense			275				344				385				285				250				(20.1	)			10.0
FDIC insurance premium expense			376				344				273				254				180				9.3				108.9
Other noninterest expenses			1,907				1,876				2,415				1,899				2,093				1.7				(8.9	)
Total noninterest expense			9,709				9,663				10,498				9,405				10,677				0.5				(9.1	)
(Loss) income before income taxes			(3,178	)			422				(5,099	)			416				319				(853.1	)			(1,096.2	)
Income tax (benefit) expense			(1,357	)			129				(2,063	)			91				225				(1,151.9	)			(703.1	)
NET (LOSS) INCOME		$	(1,821	)		$	293			$	(3,036	)		$	325			$	94				(721.5	)			(2,037.2	)
Weighted average shares outstanding - basic			8,457				8,457				8,457				8,457				8,457				-				-
Weighted average shares outstanding - diluted			8,457				8,457				8,457				8,457				8,457				-				-
Basic net (loss) income per common share		$	(0.22	)		$	0.03			$	(0.36	)		$	0.04			$	0.01				(833.3	)			(2,300.0	)
Diluted net (loss) income per common share			(0.22	)			0.03				(0.36	)			0.04				0.01				(833.3	)			(2,300.0	)
Dividends paid per common share			-				-				0.01				0.01				0.01				-				(100.0	)

 

 

 

Shore Bancshares, Inc.

Page 10 of 11

Consolidated Average Balance Sheets By Quarter

(Dollars in thousands)

 

																																										Average balance
																																										3Q 12				3Q 12
																																										compared to				compared to
		3Q 12								2Q 12								1Q 12								4Q 11								3Q 11								2Q 12				3Q 11
		Average				Yield/				Average				Yield/				Average				Yield/				Average				Yield/				Average				Yield/
		balance				rate				balance				rate				balance				rate				balance				rate				balance				rate
Earning assets
Loans		$	808,244				5.23	%		$	816,553				5.38	%		$	832,585				5.33	%		$	854,302				5.42	%		$	869,221				5.49	%			(1.0	)%			(7.0	)%
Investment securities
Taxable			135,257				2.01				130,528				2.18				129,767				2.35				118,315				2.67				109,498				2.88				3.6				23.5
Tax-exempt			2,614				5.07				3,771				5.32				4,270				5.36				4,410				5.27				4,440				5.12				(30.7	)			(41.1	)
Federal funds sold			11,971				0.11				11,200				0.10				9,794				0.06				8,709				0.05				15,905				0.07				6.9				(24.7	)
Interest-bearing deposits			150,170				0.21				124,171				0.20				111,690				0.17				103,342				0.18				70,572				0.16				20.9				112.8
Total earning assets			1,108,256				4.10	%			1,086,223				4.35	%			1,088,106				4.40	%			1,089,078				4.58	%			1,069,636				4.79	%			2.0				3.6
Cash and due from banks			20,158								21,424								18,174								18,728								20,414								(5.9	)			(1.3	)
Other assets			69,921								70,458								68,163								68,014								69,394								(0.8	)			0.8
Allowance for credit losses			(14,189	)							(14,507	)							(14,877	)							(15,168	)							(16,856	)							(2.2	)			(15.8	)
Total assets		$	1,184,146							$	1,163,598							$	1,159,566							$	1,160,652							$	1,142,588								1.8				3.6
Interest-bearing liabilities
Demand deposits		$	167,423				0.18	%		$	152,685				0.18	%		$	153,291				0.19	%		$	157,657				0.19	%		$	154,685				0.20	%			9.7				8.2
Money market and savings deposits (1)			279,003				1.19				276,527				1.18				279,355				1.12				273,906				1.07				266,871				1.03				0.9				4.5
Certificates of deposit $100,000 or more			238,624				1.46				242,662				1.46				240,521				1.46				241,810				1.46				235,362				1.63				(1.7	)			1.4
Other time deposits			207,547				1.66				205,046				1.73				201,743				1.83				201,249				1.91				204,836				1.91				1.2				1.3
Interest-bearing deposits			892,597				1.18				876,920				1.21				874,910				1.21				874,622				1.21				861,754				1.25				1.8				3.6
Short-term borrowings			14,909				0.27				13,818				0.31				17,621				0.35				16,421				0.37				15,640				0.37				7.9				(4.7	)
Long-term debt			455				4.58				455				4.63				455				4.63				466				4.46				932				4.46				-				(51.2	)
Total interest-bearing liabilities			907,961				1.17	%			891,193				1.20	%			892,986				1.20	%			891,509				1.20	%			878,326				1.24	%			1.9				3.4
Noninterest-bearing deposits			148,096								144,210								136,260								139,226								133,214								2.7				11.2
Accrued expenses and other liabilities			8,768								9,421								8,662								8,897								9,721								(6.9	)			(9.8	)
Stockholders' equity			119,321								118,774								121,658								121,020								121,327								0.5				(1.7	)
Total liabilities and stockholders' equity		$	1,184,146							$	1,163,598							$	1,159,566							$	1,160,652							$	1,142,588								1.8				3.6
Net interest spread							2.93	%							3.15	%							3.20	%							3.38	%							3.55	%
Net interest margin							3.15	%							3.36	%							3.42	%							3.60	%							3.77	%

 

(1)

Interest on money market and savings deposits includes an adjustment to expense related to interest rate caps and the hedged deposits associated with them.  This adjustment increased interest expense $524 thousand for the third quarter of 2012, $502 thousand for the second quarter of 2012, $460 thousand for the first quarter of 2012, $405 thousand for the fourth quarter of 2011 and $348 thousand for the third quarter of 2011.

 

 

  

Shore Bancshares, Inc.			Page 11 of 11
Reconciliation of Generally Accepted Accounting Principles (GAAP)
and Non-GAAP Measures
(In thousands, except per share data)

 

																						YTD				YTD
		3Q 12				2Q 12				1Q 12				4Q 11				3Q 11				9/30/2012				9/30/2011
The following reconciles return on average equity and return on
average tangible equity (Note 1):
Net (loss) income		$	(1,821	)		$	293			$	(3,036	)		$	325			$	94			$	(4,564	)		$	(1,222	)
Net (loss) income - annualized (A)		$	(7,244	)		$	1,178			$	(12,211	)		$	1,289			$	373			$	(6,096	)		$	(1,634	)
Net (loss) income, excluding net amortization and
impairment charges of intangible assets		$	(1,763	)		$	351			$	(2,960	)		$	401			$	1,094			$	(4,371	)		$	(66	)
Net (loss) income, excluding net amortization and
impairment charges of intangible assets - annualized (B)		$	(7,014	)		$	1,412			$	(11,905	)		$	1,591			$	4,340			$	(5,839	)		$	(88	)
Average stockholders' equity (C)		$	119,321			$	118,774			$	121,658			$	121,020			$	121,327			$	119,916			$	121,656
Less:  Average goodwill and other intangible assets			(16,401	)			(16,497	)			(16,606	)			(16,732	)			(18,190	)			(16,501	)			(18,329	)
Average tangible equity (D)		$	102,920			$	102,277			$	105,052			$	104,288			$	103,137			$	103,415			$	103,327
Return on average equity (GAAP)  (A)/(C)			(6.07	)%			0.99	%			(10.04	)%			1.07	%			0.31	%			(5.08	)%			(1.34	)%
Return on average tangible equity (Non-GAAP)  (B)/(D)			(6.82	)%			1.38	%			(11.33	)%			1.53	%			4.21	%			(5.65	)%			(0.09	)%
The following reconciles GAAP efficiency ratio and non-GAAP
efficiency ratio (Note 2):
Noninterest expense (E)		$	9,709			$	9,663			$	10,498			$	9,405			$	10,677			$	29,870			$	29,762
Less:  Amortization of intangible assets			(96	)			(96	)			(126	)			(126	)			(129	)			(318	)			(386	)
Impairment charges			-				-				-				-				(1,344	)			-				(1,344	)
Adjusted noninterest expense (F)		$	9,613			$	9,567			$	10,372			$	9,279			$	9,204			$	29,552			$	28,032
Taxable-equivalent net interest income (G)		$	8,769			$	9,077			$	9,243			$	9,889			$	10,172			$	27,089			$	30,094
Noninterest income (H)		$	4,001			$	4,577			$	4,574			$	4,019			$	4,523			$	13,152			$	13,299
Less:  Investment securities (gains)/losses			(278	)			-				-				(128	)			(354	)			(278	)			(435	)
Other nonrecurring (gains)/losses			-				(217	)			-				(56	)			-				(217	)			-
Adjusted noninterest income (I)		$	3,723			$	4,360			$	4,574			$	3,835			$	4,169			$	12,657			$	12,864
Efficiency ratio (GAAP)  (E)/(G)+(H)			76.03	%			70.77	%			75.98	%			67.62	%			72.66	%			74.23	%			68.59	%
Efficiency ratio (Non-GAAP)  (F)/(G)+(I)			76.95	%			71.20	%			75.07	%			67.61	%			64.18	%			74.35	%			65.25	%
The following reconciles book value per common share and tangible
book value per common share (Note 1):
Stockholders' equity (J)		$	118,163			$	119,467			$	118,584			$	121,249			$	120,986
Less:  Goodwill and other intangible assets			(16,344	)			(16,440	)			(16,536	)			(16,662	)			(16,788	)
Tangible equity (K)		$	101,819			$	103,027			$	102,048			$	104,587			$	104,198
Shares outstanding (L)			8,457				8,457				8,457				8,457				8,457
Book value per common share (GAAP)  (J)/(L)		$	13.97			$	14.13			$	14.02			$	14.34			$	14.31
Tangible book value per common share (Non-GAAP)  (K)/(L)		$	12.04			$	12.18			$	12.07			$	12.37			$	12.32
The following reconciles average equity to average assets and
average tangible equity to average tangible assets (Note 1):
Average stockholders' equity (M)		$	119,321			$	118,774			$	121,658			$	121,020			$	121,327			$	119,916			$	121,656
Less:  Average goodwill and other intangible assets			(16,401	)			(16,497	)			(16,606	)			(16,732	)			(18,190	)			(16,501	)			(18,329	)
Average tangible equity (N)		$	102,920			$	102,277			$	105,052			$	104,288			$	103,137			$	103,415			$	103,327
Average assets (O)		$	1,184,146			$	1,163,598			$	1,159,566			$	1,160,652			$	1,142,588			$	1,169,158			$	1,132,964
Less:  Average goodwill and other intangible assets			(16,401	)			(16,497	)			(16,606	)			(16,732	)			(18,190	)			(16,501	)			(18,329	)
Average tangible assets (P)		$	1,167,745			$	1,147,101			$	1,142,960			$	1,143,920			$	1,124,398			$	1,152,657			$	1,114,635
Average equity/average assets (GAAP)  (M)/(O)			10.08	%			10.21	%			10.49	%			10.43	%			10.62	%			10.26	%			10.74	%
Average tangible equity/average tangible assets (Non-GAAP)  (N)/(P)			8.81	%			8.92	%			9.19	%			9.12	%			9.17	%			8.97	%			9.27	%

 

Note 1:  Management believes that reporting tangible equity and tangible assets more closely approximates the adequacy of capital for regulatory purposes.

Note 2:  Management believes that reporting the non-GAAP efficiency ratio more closely measures its effectiveness of controlling cash-based operating activities.